WTI Crude Advances on Expected Decline in Distillate Supplies

Feb 04, 2014 4:52 pm ET

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Feb. 4 (Bloomberg) -- West Texas Intermediate crude rose for the first time in three days on speculation that distillate inventories fell last week during cold weather and as U.S. equities advanced.

Prices gained 0.8 percent. Distillate supplies, including diesel and heating oil, declined for a fourth week, according to a Bloomberg survey before a report from the Energy Information Administration tomorrow. The Standard & Poor’s 500 Index rebounded from the biggest loss since June.

“People are watching distillate inventories,” said Bill Baruch, a senior market strategist at Iitrader.com in Chicago. “That’s definitely going to be the major focus. The equity market is coming off the lows and that’s helping crude move higher.”

WTI for March delivery advanced 76 cents to settle at $97.19 a barrel on the New York Mercantile Exchange. The contract fell 1.1 percent to $96.43 yesterday, the largest decline in three weeks. Trading volumes for all WTI contracts on the Nymex were 16 percent below their 100-day averages.

Prices rose after the American Petroleum Institute said crude inventories increased 384,000 barrels last week. WTI gained $1.07, or 1.1 percent, to $97.50 at 4:37 p.m. It was $97.39 before the report was released at 4:30 p.m.

Brent for March settlement slid 26 cents to $105.78 a barrel on the London-based ICE exchange. Volume was 14 percent below the 100-day average. The European benchmark’s premium to WTI was $8.59 a barrel versus $9.61 yesterday.

Distillate Supplies

Distillate supplies declined by 2.5 million barrels, or 2.2 percent, to 113.7 million last week, the Bloomberg survey showed. The analysts projected that crude supplies climbed 2.55 million barrels to 360.2 million and inventories of gasoline rose 1.15 million to 235.6 million.

Snow will start falling across Boston and New York later today, the National Weather Service said. Freezing rain and sleet will join the mix tomorrow, Tom Kline, a meteorologist with AccuWeather Inc. in State College, Pennsylvania, said by telephone. About 25 percent of Northeast households use heating oil to warm their homes, EIA data show.

“Weather-related withdrawals of distillate are giving WTI some support,” said Bob Yawger, director of the futures division at Mizuho Securities USA Inc. in New York. “We’re seeing a bit of consolidation here.”

Distillate supplies dropped 4.58 million barrels in the week ended Jan. 24, said the EIA, the Energy Department’s statistical arm. Demand for the fuel surged 20 percent to 4.52 million barrels a day, the most since February 2008.

Equities Gain

Refineries reduced their operating rates to 88.1 percent from the prior week’s 88.2 percent, the Bloomberg survey showed.

“Crude-oil inventories are going up because you are getting drops in run rates,” said Bill O’Grady, chief market strategist at Confluence Investment Management in St. Louis, which oversees $1.4 billion. “You are getting a pretty nice recovery in equities. That usually presages more confidence and better growth and that’s giving oil a lift.”

The S&P index advanced 0.8 percent as investors assessed corporate earnings and data showing factory orders fell less than estimated in December. The index dropped 2.3 percent yesterday.

“There’s a little strength in U.S. stocks” that is supporting oil, said Addison Armstrong, director of market research at Tradition Energy in Stamford, Connecticut.

Brent Price

Brent was little changed as the North Sea Buzzard field restarted after halting yesterday, according to operator Nexen Inc. The 200,000-barrel-a-day field feeds into the Forties blend, one of four grades that make up the Dated Brent benchmark used to price more than half the world’s crude.

Implied volatility for at-the-money WTI options expiring in March was 21.4 percent versus 21.6 percent yesterday, data compiled by Bloomberg showed.

Electronic trading volume on the Nymex was 397,243 contracts at 4:37 p.m. It totaled 611,348 contracts yesterday, 21 percent above the three-month average. Open interest was 1.56 million contracts, the lowest level in a year.

--With assistance from Mark Shenk in New York. Editors: Richard Stubbe, Dan Stets